Thanachart Capital

Thanachart Capital Plc (TCAP)

Q2 2013 profit grows notably. Core business impressive, fee rises, but provision increases
TCAP reported 2Q13 net profit at B4.07bn, 6% lower than our projection due to higher
operational cost than expected mostly from sales promotion and marketing expenses.
However, the net profit made a new quarterly high, leaping 108.8% qoq and 135.4% yoy,
mainly due to an extraordinary income, which is B4.65bn profit from TLife sale (calculated
from the total of B17.4bn from the sale, which was received for the first time in early-May
2013 (B940m would be booked in June 2013 and the remaining B500m will be booked in the
next year, B18.9bn total), net after the investment cost of B4.5bn and the provision
according to auditor’s opinion of B1.5bm, and deducted by NCI and tax. TCAP decided to use
B5bn from the money as additional debt provision, mounting the current provision of 70 bp
to B6.41bn. The core business was still strong. 1) 2Q13 net interest income grew 4%
qoq and 10.6% yoy - higher than projected, in line with net loan growth of 2.2% qoq
and 17% yoy. 1H13 net loan growth was only 4.4% from end-2012, quite low compared to
FY2013 target at 12%. Most growth is from new auto hire-purchase loans which still
benefited from local auto sales as a result of the government’s first car scheme. For small-
SME loans, growth was greater, even higher than projected. Corporate loans had also grown
well compared to 1Q13. 2Q13 NIM had still signaled improvement, rising 10bp to 2.70% -
better than projected. Though no more income from NPL corporate debtor (Sahafarms) was
recognized, yield from auto hire-purchase loans increased due to low competition and
support from TLife sale that TCAP invested to seek short-term returns, as well as decreasing
funding cost as a result of lowered interest rate in late-2012. NIM thus increased. 2) 2Q13
fee income remained high at 8.6% qoq and 67.7% yoy, due to support from loanrelated
fee income, especially car hire-purchase (such as license plate renewal fee and tax),
as well as non-loan fee income, particularly brokerage fee income from securities business of
the subsidiary from the total trading volume in the market at above B50bn a day.
Furthermore, fee income from Bancassurance transaction for Prudential Life had been very
robust in its first 2 months of operation.
- Cut 2013-2014 forecast to reflect higher debt provision and lower loan target
We lower TCAP’s FY2013-2014 earnings forecast by 20.8% and 10%, respectively, in order
to reflect provision that rose to 90bp from projected at 50bp and 70bp, respectively. At the
same time, we cut net loan growth target to 10% yoy as 1H13 net loan growth was lower
than projected at 12% yoy. 2H13 earnings are anticipated to grow to the target because the
bank has already projected to see deceleration in the new car market. SMEs and corporate
loans would grow aggressively in 2H13, while the quality asset is still in a controllable level.
Though NPL in used-car hire purchase loans rose, the bank’s cautious policy regarding the
loan issuance would relieve the concern. Moreover, due to high provision in 2Q13, the
coverage ratio (LLR/NPL) rose to 85%, closer to peers, from 75% at end-1Q13. Tier-1 capital
after the debt provision remained high at 8.3%. Combined with tier-2 capital of around
5.5%, CAR would be as high as 13.9%, which is very healthy.
- Reiterate BUY. New 2013 fair value is B46.50. PBV and PER low
We reiterate our “BUY” recommendation. New 2013 fair value after revision is B46.50, based
on PBV of 1.17x, from B53.95 at 1.3x PBV. The current share price has undergone correction
until it has very low PBV and PER comparing to the sector. Upside is 22%, with dividend yield
expected at more than 4% p.a.